That’s the question we were recently asked by a Chinese colleague. It was not asked in a hostile way. The Chinese are on the verge of a major overhaul of their vocational and technical education system. They are looking around the world to see what the top performers are doing. They know, as we do, that the United States is not on anyone’s list of countries with the best vocational education and training systems. But the U.S. economy is surprisingly healthy compared to the other major industrial powers. How come? Does that suggest that having a strong vocational education and training system is not all that important to national economic success?

In a way, this is a trick question, though it was not intended to be one. It assumes that there is agreement that the U.S. economy is doing well. The truth is a little more complicated. American companies are doing well. American manufacturing is pulling out of a real hole and is doing better than anyone expected, contributing to a dramatic rise in American exports and, therefore, to a decline in the trade deficit. The wealthiest Americans are doing very well, too, not least because the stock market keeps setting new highs.

That’s about where it ends. Unemployment is still very high (compared to Germany or Singapore, let’s say, not to Greece or Portugal). And the unemployment figures do not include the millions of workers, mainly men over fifty, who used to have good jobs, were laid off, and have given up looking for work. The U.S. unemployment rate among young people, especially minority young people, is frightening. You might think that their problem, however painful, is temporary, lasting only until the economy recovers, but research shows that that is not true. Their income will suffer through their entire work lives because of their inability to become part of the active workforce and start moving up the ladder during these crucial years. A large fraction of the workers who used to have regular full time jobs at big firms, are now “contingent” workers, who are, in effect, on call. They work whenever their old employer or some other company needs them. Whatever job security they used to have has evaporated and they don’t get any benefits from any of their employers. This recession was a doozer, leaving a great deal of human misery in its wake, but it was not unique. Over the last couple of decades, each “recovery” has been more jobless. Average real wages have been stagnating and sometimes declining, but certainly not rising, for a long time.

It is as if there are two Americas, one composed of this country’s companies and the other of its workers. Look more closely, though, and you will see that it is a little more complicated than the picture I just painted.

The people that Richard Florida calls “the creatives” are doing very well. These are the professionals who majored in the right subjects in university and have the skills most in demand. They are able to choose where they want to live and work, and are making very good money, as are “the geeks”. These are the people who invent the future at Google, create a whole new level of animated and special effects films, redesign global mega-cities, come up with new financial instruments and invent treatments for age-old diseases.

The obvious question is why so many of companies and some of our workers can be doing so well while so many of our people are really struggling.

One reason is that an increasing share of American companies are American only in the sense that they are headquartered in the United States. Many American companies became global by outsourcing production to lower cost countries in the 80s and 90s. Their only other choice was to go out of business. But, since then, many of those companies have realized that the rise of many previously poor countries made possible by the globalization of production had also created an enormous rising middle class in those countries, a middle class of potential customers for their products. The result has been a vast expansion of companies of all sizes in the advanced industrial countries into the markets of the developing world. Scratch an “American” firm, particularly the large ones, and you are likely to find a company more and more of whose customers are outside the United States. In many cases, those companies have learned that they need to customize those products to the needs and desires of the local population, and so more and more of what they make is made near the customer, not in the United States. That is the first explanation for the situation in which American firms do well when the American worker does not.

A look at the American textile industry provides another part of the answer. The New York Times reports that the American textile industry, almost extinct after it moved to China and other low wage countries in the 1990s, is now resurgent. A new mill in South Carolina produces 2.5 million pounds of yarn a week with about 140 workers. The same volume of production in 1980 would have required 2,000 workers. Because labor costs now account for so much less of the final cost of the product, the difference between American labor costs and Asian labor costs are not so important to the employer, and when one takes into account the fact that there are no import duties, that the cost of transportation is a small fraction of what it is for imported goods, the time it takes to get anything across the Pacific in a freighter and many other things, the calculus, with increasing frequency, favors making it—whatever it is—in the United States, for an increasing array of products.

During the Great Recession, American firms had an enormous amount of cash on hand. They did not want to use it to expand capacity, because demand had shrunk drastically. Some bought back their stock. But a great many used their cash to automate their work. That is why companies like the yarn plant I just described are able to bring their manufacturing back to the United States and drastically shorten their supply chain. Many are not only manufacturing more of what they used to outsource, but are manufacturing it for export to others. The catch is that they can manufacture at levels approaching what they were doing before they went offshore, but with far fewer workers. “Machines,” The Times reports, “have replaced humans at almost every point in the production process.”

But The Times also reports that “…companies that want to make things here often have trouble finding qualified workers for specialized jobs.” Describing why that is so will take a few paragraphs.

Prior to 1973, the United States had two vocational education systems. One was operated by our schools, the other by the United States Army. The first was widely acknowledged. The second was barely acknowledged at all. Nineteen seventy-three was the year that the draft was abolished and the all-volunteer army began. Prior to 1973, Army recruits were very well trained by the military for a wide range of occupations, most of which were in demand in the civilian economy. If the recruit did not have the basic literacy the Army required, the Army provided the schooling the recruit needed. Because most of the force consisted of conscripts who would leave at the first opportunity, the Army’s vocational training system provided a very large and very important stream of very well trained workers for the civilian economy. The training still goes on, but those who receive it intend to make a career in the Army, not in the civilian world, so the civilian sector suffered a very large, but mostly unremarked, loss of trained labor.

The 1970s also saw another portentous change, this one in American high schools. Prior to that decade, most medium and large cities had vocational high schools for the trades, many of which were highly regarded selective institutions. They limited admissions to the number of students needed to fill the openings projected by employers. Close relationships between employers and these schools made it possible for the schools to get highly qualified instructors and up-to-date equipment. These high schools and the formal apprenticeship program of the trades unions provided a steady flow of very well qualified tradesmen to the industries that needed them. But, in the 1970s and 80s, school boards all over the United States abolished these selective vocational schools as undemocratic, and asked all of their high schools to offer vocational training. The close relationship with employers dissolved. The comprehensive high school found it very difficult to get up-to-date equipment or qualified instructors.

In the late 1980s and early in the 90s, the United States began to focus on the need to raise academic standards. Vocational instructors in our high schools began to report that there was less and less time in the high school schedule for vocational courses and less and less money available to fund them. Vocational education in many of our high schools became a dumping ground for students who could not succeed in the high school academic track.

These are broad, sweeping statements, and they were not universally true. Some, mostly Southern, states managed to maintain strong vocational programs. Massachusetts is notable among the Northern states for maintaining a strong program of regional vocational schools. Some states have managed to keep some vitality in their community college technical programs. The National Science Foundation has done a good job of stimulating the development of some strong advanced manufacturing programs in selected community colleges. And there are stirrings of interest in a number of states in reversing the picture of decline I have just painted, most notably around a program from Harvard University and Jobs For the Future called Pathways to Prosperity. And President Obama has been using his bully pulpit to promote a new generation of high school programs epitomized by the Pathways in Technology Early College High School sponsored by IBM in New York City. But the fact remains that the United States has a long way to go to match the standing it once had among the nations in the arena of vocational and technical education.

So I will now return to the question from my Chinese colleague with which we began: “If vocational education is so important, how come the U.S. economy is doing so well?” The answer, as I see it, is that U.S. companies are doing well and the shareholders in those companies are doing well, but U.S. workers are not doing well. If that continues much longer, there is good reason to believe that the American economy will no longer continue to do well.

Indeed, the U.S economy—quite famously—is now on a collision course with the need to fund rapidly rising health care costs with a smaller proportion of its population in the work force. There is only one possible response to that challenge: higher worker productivity. It is also the case that the United States faces an ever greater threat to its political stability as the distribution of income becomes ever more unequal. There is only one possible response to that challenge: The people who are now dropping out of the economy or moving down in the economy must be given the skills and knowledge they need to participate in the global economy. These two imperatives amount to the same thing: The only way the United States can address both its fiscal and political issues is to make a very large investment in vocational and technical education, an investment that will allow a growing number of potential dependents to make a real contribution to their own future and that of their country.